MP logo Meyer-Reumann & Partners
German Legal Expertise in the Middle East since 1981

Iran Sanctions Update July 2014

Guiding Principle

In January 2014, the five permanent members of the UN Security Council – United States, United Kingdom, France, China, and Russia, plus Germany (“P5+1”) negotiated an Interim Agreement with Iran and agreed on a Joint Plan of Action to suspend some of the existing EU and US sanctions against Iran for a period of six months. It was announced in July 21, 2014 that the Joint Plan of Action would be extended for four months to allow negotiations between the P5+1 and Iran to continue.

A. The Latest Status of the Geneva Joint Plan of Action

Iran and the P5+1 countries (United States, United Kingdom, France, China, and Russia and Germany) had agreed a six-month suspension of EU and US sanctions against Iran as part of the Geneva Joint Plan of Action (“JPOA”) beginning in January 20, 2014, which would have expired in July 20, 2014. The JPOA provides limited US and EU sanctions relief to Iran in return for undertakings of the Iranian government pertaining to its nuclear program, focusing on the reduction of its stockpiles of enriched uranium.

On July 21, 2014 Iran and the P5+1 countries agreed to extend JPOA for four months allowing the continuance of negotiations between the P5+1 and Iran. Both the UK[1] and US[2] have made announcements relating to the extension and the EU has published Council Decision 2014/480/CFSP[3] which extends the previous relaxations until November 24, 2014.

B. The Latest Status of the Negotiations

The United States, European Union and Iran released positive statements on status of the negotiations. In accordance with the Statement released by the Press Secretary of US White House on July 18, 2014, the negotiations of Iran and the P5+1 countries ‘have made progress in some areas and, while real gaps remain, there is a credible prospect for a comprehensive deal’. [4] In all statements it has been emphasized that the International Atomic Energy Agency (the “IAEA”) has verified that Iran has met its commitments under JPOA:

– ceasing its enrichment of uranium to higher levels;

– taking steps to neutralize its more dangerous stockpile of nuclear materials;

– refraining from installing more centrifuges, including its more advanced models;

– halting advances at its Arak reactor; and

– submitting to broader and far more frequent inspections of its facilities.

C. The Latest Status of the EU and US Sanctions Relaxation

The relaxations to the EU and US sanctions, contained in the JPOA, now remain in force for a further four months. In summary, the EU sanctions relaxation include the following:

  • With regard to crude oil and petroleum products: (i) Suspension of the prohibitions on transport of crude oil and “some” petroleum products which are from, or originate in Iran, by EU owned or registered vessels, provided that such transportation is not to an EU country but rather is to a country which has received a National Defense Authorization Act (“NDAA”) waiver (i.e. China, India, Japan, Republic of Korea, Taiwan or Turkey); and (ii) Suspension of the prohibitions on financing or financial assistance, insurance or re-insurance in relation to the purchase, import and transport of such products;
  • With regard to petrochemical products: Suspension of the prohibitions on the import, purchase, transport, financing and insurance of petrochemical products from Iran or which are of Iranian origination;
  • With regard to gold and precious metals: Suspension of the restrictions on direct or indirect supply, sale, transfer or export, insurance and reinsurance of gold and precious metals to or from the Government of Iran, its public bodies, corporations and agencies or any person, entity or body acting on their behalf, at their direction or controlled by them;
  • An additional licensing ground permitting the making available of funds to the Ministry of Petroleum in relation to the import or purchase of Iranian-origin petrochemical products; and
  • Increased notification and authorization thresholds for the transfer of funds to and from Iranian banks and Iranian persons.

The relaxations to the US sanctions regime include the following:

  • Dealings with certain Iranian persons and banks are permitted for the purpose of the export of petrochemical products to non-US persons;
  • Transportation of crude oil for import only to NDAA waiver countries and only up to the level of the prior year’s imports is permitted;
  • Engaging in transactions for the sale, supply or transfer to Iran of goods or services used in connection with the Iranian automotive sector by non-US persons and to conduct/facilitate related financial transactions by non-US financial institutions are permitted;
  • Certain activities related to the safety of Iran’s civil aviation industry are permitted;
  • Purchase or acquisition of gold and precious metals by Iran or the Government of Iran is permitted;
  • Facilitating humanitarian trade for Iran’s domestic needs (food and agricultural products, medical devices, payment for Iran’s UN obligations and payment of Iranian students’ fees is permitted

It should be noted that with the exception of certain civil aviation and humanitarian activities, none of the sanctions relief applies to US persons or foreign entities owned or controlled by US persons.

In order to build further confidence in an effort to reach a broader agreement until November 24, 2014, the US Department of State has confirmed that Iran will be allowed access to $2.8 billion of its restricted assets, held at various central banks in third countries in local currencies, in return for further limited Iranian commitments regarding its nuclear program. It should be noted that Iran will not receive any more funds during the next four months than it did during the preceding six months, and that the vast majority of frozen oil funds will remain inaccessible. Furthermore, as with the similar releases of funds over the last six months, banks are prohibited from sending the funds to any Iranian bank or entity specifically designated under US sanctions. Moreover, it is not intended that Iran use the funds to purchase goods or services that cannot be exported to Iran under US, EU or other trade controls. However, Iran is free to use these funds in permitted area such as sending them to banks or companies in third countries.

D. Practical Impact of the Extension

Since signature of the JPOA, non-US banks and non-US companies have been able to carry out certain limited categories of transactions without penalty under the suspended EU sanctions or US extraterritorial sanctions as outlined above. It is important to recognize that, notwithstanding the above sanctions relief, a stringent sanctions regime remains in force, including a wide-ranging asset freeze. It bears repeating that the US government, including the Office of Foreign Assets Control (“OFAC”), have said that they will continue to “vigorously enforce” the US sanctions on Iran that are not suspended. EU member states will also continue to consider enforcement action where appropriate for breach of the broad EU sanctions that are not suspended. Therefore, it is anticipated that EU companies and banks will continue to adopt a cautious approach to dealing with Iran.

October, 2014 Zahra Tahsili
Meyer-Reumann & Partners, Tehran Office

[1] For more information please visit:
https://www.gov.uk/government/news/e33-and-iran-agree-to-extend-interim-nuclear-deal

[2] For more information please visit:
http://www.state.gov/secretary/remarks/2014/07/229491.htm

[3] For more information please visit:
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2014.215.01.000 4.01.ENG

[4] For more info. please visit:
http://www.whitehouse.gov/the-press-office/2014/07/18/statement-press-secretary-extension-iran-nuclear-talks

Share:
For free subscription send us your contact details to Lexarabiae@meyer-reumann.com